In for the long haul
Purchased for 800 million yuan ($119 million) in 2014, Mary Kay’s 13-floor office building in Shanghai’s upscale Jing’an district, which has up to 27,000 square meters of space and neighbors the likes of cosmetics conglomerates such as L’Oreal and Estee Lauder, represents the beauty company’s single largest investment in China.
To Paul Mak, the company’s China CEO, it is a worthwhile investment that will boost Mary Kay’s efforts to drive growth and further penetrate the Chinese beauty market, now the largest in the world.
During an interview following the ceremony to kick off the operation of the new building, Mak revealed that the sales from third tier or lower cities and towns last year had contributed to more than 70 percent of the company’s total. The company is bullish that this trend will continue, helping maintain Mary Kay’s double-digit growth in China.
While the company does not disclose its revenue in China, it had mentioned before that as of 2013, its sales in China had grown by 75 times since 1995 when it debuted in the market.
In 2014, China had for the first time surpassed the Dallasbased company’s home market as its largest and “most important market”, said the company’s global CEO David Holl.
The same year, at a time when many real estate companies in China were selling properties to lighten their assets, Mary Kay became the first foreign cosmetics company to invest in China’s volatile property market with the acquisition of its office building.
The move has been considered a bold one, especially since Mary Kay’s competitors had been pulling out of the market. Revlon, the first foreign cosmetics brand to enter China in 1976, had earlier that year announced its exit from the Chinese market, citing underperformance. Just one week later, L’Oreal pulled its Garnier brand out of China, claiming that the move would help the group better focus on the growth of its other brands.
Mak said that the acquisition of the office building does not represent an investment in the property sector, but is rather a testament to the company’s confidence in China’s cosmetics market, or more specifically, its direct sales market.
Statistics from the Chinese Academy of Direct Selling Management showed that by 2015, direct sales had become a 200-billion-yuan industry, with skincare and health supplements being the two pillar products. The industry size is projected to double over the next decade.
China’s direct selling market is a small one that is dominated by the big players. As of 2015, the market had fewer than 80 companies, a result of the government regulations introduced in 2005 to clamp down on the misleading and manipulative sales tactics by many companies. Ever since, only licensed businesses were allowed to engage in direct sales of their products.
“One of our key strategies is to keep our roots in big Chinese cities, including Shanghai and Beijing, while expanding our presence and enhancing our service level in lower-tiered cities,” said Mak, who leads an all-female sales team of more than one million.
“Our biggest advantage is the people. They help us to rapidly penetrate the lower-tiered cities with our products without shopping malls or sales counters, which is crucial in a large and segmented market like China,” he added.
Mary Kay has also chosen to stay clear of both the online and offline markets in China, a strategy which Mak said is aimed at channeling the focus to its salespeople. This emphasis on the human element can be seen at Mary Kay’s showroom in Shanghai — the brand’s only one in China — where a sales agent has to be involved every time a customer requests to test or buy a product.
Looking ahead, Mak revealed that the company is eyeing a piece of the health supplements market and plans to launch its first product in that category in the coming years.
“To be in the health industry, I am pushing myself and my staff to stay healthy. Personally, I have lost 15 kilograms over the past two years,” said Mak.
“Everyone is talking about having a healthy lifestyle these days, but there still is a huge head room about how to keep healthy in the country,” he added.
Mary Kay China CEO Paul Mak.